Broker spotlight: Wolseley takes a bath

Companies featured in the broker spotlight: Wolseley, SABMiller, Coca-Cola, UK banks, Tullow Oil

Broker spotlight: Wolseley takes a bath
Wolseley shares lost a tenth of their value

Plumbers' merchant Wolseley (LON:WOS) is taking a bath after downgrading sales guidance for the first half of the current fiscal year.

The company said it expects to generate like-for-like (LFL) revenue growth of around 4% in the first half of the year to 31 July 2016, which is not to be sniffed at, but is disappointing given previous guidance.

“The UK heating market continues to prove challenging, while a previously announced impairment charge taken in relation to its Nordics business adds to the negativity,” notes Keith Bowman, an equity analyst at Hargreaves Lansdown.

“In all, Wolseley appears to remain something of an economic barometer. Exposure to the US economy provides attraction, whilst the company’s push to increase e-commerce sales and management’s emphasis on shareholder returns add further attraction. For now, and despite a 30% plus out-performance of the broader FTSE-100 index over the last year, analyst consensus opinion currently points towards a buy,” Bowman notes.

Does the Bud(dy) want a Coke, is the question being posed by Deutsche Bank, as it speculates whether SABMiller (LON:SAB), once it has consummated its relationship with Anheuser Busch, will take a run at The Coca-Cola Company a few years down the road.

Coca-Cola represents around one-fifth of SABMiller's volumes, directly and indirectly, in 38 markets, and three-fifths of the volumes in Africa.

“An ABI/SAB deal will take an extensive time to pass regulatory requirements, especially in African markets where governments tend to work a bit slower, giving Coca Cola plenty of time to find other partners such as Heineken who already bottle in Central Africa. If ABI/SAB happens, Coke needs to be on board in our view,” Deutsche said.

Nomura has been doing a bit of trimming of its target prices for UK banking stocks, though in the case of Standard Chartered (LON:STAN) the trimming appears to have been done with a chainsaw.

The emerging markets-focused bank sees its price target slashed to 795p from 1,055p, though Nomura sticks with the neutral rating.

Nomura is also neutral on Standard Chartered's fellow traveller HSBC (LON:HSBA), where the target price is cut to a target price of 600p from 675p.

The stocks to buy in the sector, in Nomura's view, are Barclays (LON:BARC) – target price 310p (down from 335p) – and Lloyds Banking (LON:LLOY) – target price 97p, down from 103p.

Cantor Fitzgerald has upgraded Tullow Oil (LON:TLW) to 'hold' from 'sell' but this is more to do with the 58% fall in the share price since the broker initiated coverage on the oil firm in June.

“If oil prices continue to decline, we see a further potential risk of dilution (asset divestment/equity/debt) as Tullow may need to recapitalise to support significant investment in its existing West African projects,” the broker said, leaving its forecasts unchanged.


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